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New Street Research analyst Pierre Ferragu says the Street is expecting too many Apple iPhone upgrades.
Ming Yeung/Getty Images
Apple
stock practically lives and dies on the company’s iPhone sales every year. Even though the iPhone 13 launched last week, didn’t surprise anyone, there are good reasons to predict it will have a positive impact on the share price.
But New Street Research analyst Pierre Ferragu wrote in a research note that investors should be cautious about Apple’s (ticker: AAPL) forthcoming iPhone 13 sales. It’s not the phone itself, which looks like a powerful piece of hardware, and contains several incremental updates. The problem is the number of people who are likely to upgrade shares that is getting discussed on Wall Street.
Several reports, Ferragu wrote, say that there are more than 450 million iPhones three years old or older—seemingly nearly a half billion people that may want to upgrade. As a result, Apple bulls have predicted a strong cycle for the forthcoming batch of phones.
But Ferragu said that steps over an important factor: most people who buy new phones are now upgrading them every two years, either trading them in or handing them down to a child, for example. Their phones are reused in the secondary market, which upgrades every two to three years.
Taking into account the phones that will likely get upgraded this year—from people who own iPhones that are roughly two years old—Ferragu arrives at a much smaller number of likely replacements: 190 million. That is fewer than last year’s figure, which suggests to him that the setup for the iPhone 13 isn’t as good as the iPhone 12.
In May, Ferragu downgraded Apple stock to a Sell, and set a $90 target price. At the time, he wrote that his team sees “material downside risk” with shipments of the new phones in the 180 million to 200 million range, compared with the consensus estimate of 234 million.
Of the 44 analysts that cover Apple 73% rate shares at Buy, and 23% have a Hold rating.
Apple stock is down 2.1% to $143 in recent trading amid broad market weakness. Shares have gained 7.7% this year, as the comparable rise in the
S&P 500 index
stands at 19%.
Write to Max A. Cherney at max.cherney@barrons.com
